The recent failures of Silicon Valley Bank (“SVB”) and Signature Bank have dominated news headlines for the last several days. The seemingly abrupt failure of two large financial institutions and the subsequent revelations that some businesses could lose a substantial amount of deposits have a lot of business owners concerned about the security of their funds. However, recent actions by the Federal Reserve Board (“FRB”) and United States Treasury Department have substantially reduced the risk that depositors will lose deposits.

After depositors rushed to withdraw funds from Silicon Valley Bank (SVB), on Friday, March 10, 2023, the US bank was closed by the California Department of Financial Protection and Innovation (DFPI), and the Federal Deposit Insurance Corporation (FDIC) was named receiver of the closed bank.

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A lot of ink has been spilled in the last 72 hours regarding the historic developments involving Silicon Valley Bank and Signature Bank. Our quick summary of the facts and law is below. Cadwalader will continue to monitor these developments closely and will update you with additional insights.

The March 2023 banking crisis has been an unexpected “stress test” for dealing with liquidity issues.

When state regulators closed Silicon Valley Bank this past Friday, many startups understandably faced severe liquidity issues triggered by the sudden and unexpected loss of access to their deposits.

This alert provides background on the failure of Silicon Valley Bank and explains significant recent developments, including the subsequent failure of Signature Bank and the U.S. government’s announcement that the Federal Deposit Insurance Corporation (FDIC) will make whole all depositors of both institutions. This alert also describes the new program simultaneously announced by the Federal Reserve to provide additional liquidity to the banking industry.

Run on Silicon Valley Bank

Following the collapse of Silicon Valley Bank (SVB), there are many questions being asked across the financial and tech space: what caused the bank to collapse? Could it have been prevented? What could the bank itself and indeed its 40,000 customers - mostly in tech – done differently to mitigate risk and minimise impact.

Given SVB’s involvement in funding many fledgling tech start-ups and scale-ups, we look into what the Bank’s failure could have spelled for the viability of these businesses, and indeed the customers they supply into.

Here is the latest regarding Silicon Valley Bank (“SVB”) and Signature Bank as of Sunday, March 12th according to the FDIC. We expect to learn more by COB Monday, March 13th:

Depositors will have access to all of their money starting Monday, March 13.

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On Sunday evening, March 12, 2023, the US Department of the Treasury, Board of Governors of the Federal Reserve Board (Federal Reserve) and Federal Deposit Insurance Corporation (FDIC) released a joint statement announcing various actions to stabilize the US banking system, in light of the widely publicized failures of Silicon Valley Bank (SVB) and Signature Bank (Signature Bank), each of which was closed by their respective state chartering authorities, with the FDIC appointed as receiver.